Written by

Share

Written by

It’s not very reassuring when a management consulting company can’t even pay its own rent. The Monitor Group, a highly prestigious American consulting firm until it admitted in 2011 to being Moamar Gaddafi’s spin doctor, declared bankruptcy on Nov. 7. It will be enveloped by Deloitte Consulting in the US, with the overseas offices falling under Deloitte’s other arms.

It’s not necessarily against the law to have bad judgment, but it is illegal in the US to work with Libya without registering with the Department of Justice, as per the Foreign Agents Registration Act. A March 2011 article in Mother Jones magazine flagged Monitor’s failure to do so. The firm was not charged, and it registered its Libya work retroactively. But Monitor later admitted the whole thing was a “major mistake.” (The company’s press office now denies any link to its need to file for bankruptcy, telling Quartz that its “work in Libya has played absolutely no part in shaping events.”)

Quartz: Did Monitor’s Libya work have anything to do with its bankruptcy?

Victor Cheng: It is possibly what made their business take a turn for the worse.

Quartz: Why did bankruptcy become Monitor’s best option?

Cheng: A firm like Monitor is forced to declare bankruptcy when they run out of cash and have no other options. They delayed cutting costs, in hopes the decline in business was a temporary problem that would self correct. When the dip in business doesn’t self correct and you’re low on cash (which they were as they were forced to raise outside capital recently), you risk hitting the wall — which is what happened at Monitor.

Quartz: How could a consulting firm, which often helps its clients avoid these kinds of disasters, come to find itself in this position?

Cheng: This is complete tragedy as Monitor is (or I should say was) a very reputable firm. To add insult to injury, the kind of problem Monitor currently faces is precisely the kind of problem Monitor used to be hired to solve for their clients. It’s like having your mechanic get into a car accident because of faulty breaks–in short, they should have known better. The underlying business cause is made worse by some degree of hubris or denial. It’s the thought that, we can’t possible go under, because we’re Monitor–founded by the legendary Michael Porter [a Harvard professor]. It is precisely the false belief that you’re somewhat invincible that causes a firm to delay taking aggressive actions to prevent a bankruptcy.